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Question for the Money Doctors

Question submitted on Feb 11, 2019.

Question

I submitted this question a few months ago.I am 66 years old retiree. My wife is also retired. I have $200,000+ in the bank drawing little to no interest. My primary home is paid off and I own a rental property. Our retirement income is enough to support our monthly expenses and still leave some money to save. I am financially conservative. What is a safe investment for my situation? I need to start somewhere.

So, I recently pulled $100K out of my investment account and I have decided to reinvest that money in an index fund(s)(Vanguard). Should I invest the money in a variety of index funds or invest in just one index fund? Ex. a S&P 500 fund?

Answer

It is hard to answer this question without knowing your specific financial goals and the amount of risk you are willing to take. I am going to make a big assumption: You do not need this money right now and willing to invest it for the long term and willing to accept some risk.

If you do not want any risk, I would suggest laddering this money in CDs. Let's say you invest in $10,000 CDs that mature every month. For example you buy a 1 year CD for $10,000. You buy another CD for $10,000 that will mature a month later and you keep doing this until you have the full amount invested. When the CDs mature you can reinvest them in CDs or do whatever you want with the money. This is risk free, but it will not grow by much. Interest rates are getting better. You can do this through a brokerage firm which will be easier than trying to do this with a bank.

If you are willing to take some risk, you can invest in a mix of funds. Index funds are passive investments and will have the lowest fees. I suggest looking at the ETFs because they are the most tax efficient.

To keep things simple, I would suggest 30% in a Total Bond Index, 20% in a Total International Index, 10% in the REIT index (real estate), 10% in Small and Mid Cap, 15% in Dividend Paying Stocks, and 15% in the Total US Market. This assumes you will not need the money for at least 5 years. You can ask the mutual fund company to send you the interest, dividends, and capital gains. You mention Vanguard in your question, you can contact them to help you set this up. You can go to their website to look up the specific ETFs and do your research. This is not risk free and the value will go up and down depending on the market conditions. Please do not panic when the values fluctuate. I don't recommend looking at this everyday.

All the investment companies such as Vanguard, Schwab, Fidelity, etc. have a lot of good information on their websites. They have podcasts and videos to explain various investment concepts. The more informed you are, the better.

Also spend some time on our website - 360 degrees of Financial Literacy and read the various articles about investing.